Yuan up, dollar down?

Some significant news developments just don’t get much coverage by the general media. Here is a perfect example.

On Nov. 27, the Russian government announced that it would immediately begin adding Chinese yuan-denominated assets as part of its central bank reserves. This statement came even before the International Monetary Fund Executive Committee voted on Nov. 30 to begin adding the Chinese yuan as a component of the IMF’s Special Drawing Rights – effectively making the yuan a world reserve currency.

As last reported, the Russian central bank’s reserves were allocated 44 percent to the U.S. dollar, 42 percent to the euro, 9 percent to the British pound, and probably most of the balance to gold. Since the Russian central bank has been actively reducing its holdings of dollars over the past two years, it is almost certain that the Chinese currency added to the bank’s reserves will come to the detriment of U.S. dollar reserves.

This move makes a lot of sense as Russia and China have signed a 30-year agreement for the Chinese to purchase Russian natural gas that is priced and paid in yuan instead of dollars.

While the addition of the Chinese yuan as part of the Special Drawing Rights will not happen until September 2016, this move by Russia’s central bank could accelerate the displacement of dollars in international commerce. As fewer U.S. dollars and Treasury debt are held as central banks around the world, they will be repatriated to Washington to be paid off in goods, services and ownership of American companies and real estate.
As international demand for U.S. dollars declines, expect the relative value of the U.S. money to other world currencies to likewise fall.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

More Collecting Resources
• Are you a U.S. coin collector? Check out the 2016 U.S. Coin Digest for the most recent coin prices.
• The Standard Catalog of United States Paper Money is the only annual guide that provides complete coverage of U.S. currency with today’s market prices.